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Lessons from Interpublic's global financial chaos

The Financial Times reports the sobering story of marketing and ad agency group Interpublic who, after over 400 acquisitions and global expansion, found itself having to restate its accounts for the past ten years and be the subject of an SEC investigation into its accounting practices:

[...] The company discovered "instances of deliberate falsification of accounting records, evasion of taxes in jurisdictions outside the United States, inappropriate charges to clients, diversion of corporate assets, non-compliance with local laws and regulations, and other improprieties." In terms of their impact on Interpublic’s restatement, the biggest problems were in Turkey, where the company has said it might fire senior local managers at its McCann and FCB agencies.

And if that wasn't enough:

A more subtle issue facing Interpublic involved legal local business practices. One such question turned on vendor discounts or credits – cash that agencies receive in return for buying large blocks of advertising time or space on behalf of clients. In Latin America, the Mediterranean and other regions, agencies often keep this money.

Interpublic’s problem was that this practice was difficult to reconcile with some of its global contracts with clients and with its obligations under US GAAP. It is clearly trying to make amends. Paying back this money accounts for most of the $250m that Interpublic has set aside to compensate hundreds of counterparties under the restatement.

[...] Advertising agencies face the risk that their more distant outposts will not produce enough revenue to justify the cost of compliance with Sarbanes-Oxley. This is a big issue for Interpublic. While discussing the earnings restatement, Interpublic executives said overall professional fees – mostly for compliance with Sarbanes-Oxley – represented 4.7 per cent of the company’s $2.9bn in first-half revenues. If that trend continues, and the company suggests that it will, Interpublic could end up spending an astonishing $300m this year on accountants, lawyers and other professional service providers. That compares with professional fees of $28.5m as recently as 2002.

The lengthy FT feature considers the role of Michael Roth, Interpublic’s chairman and CEO, and what he's been doing to clean Interpublic's house since he assumed the top job last January. The FT reports that Roth's learning experiences include:

• Get accounting systems in place before you go global. Interpublic’s financial woes have been compounded by a failure to unify its operations' IT systems.
• Beware of "local business practices". Interpublic has found it hard to reconcile legal activities in foreign countries with the demands of US accounting standards.
• Think hard about Sarbanes-Oxley. Interpublic could spend as much as $300m this year on professional services. Not all foreign opportunities are worth the accounting costs.
• Follow the clients. More big corporations are giving global advertising assignments to streamlined networks. Marketing services holding companies should take note.

Financial Times | When globalisation goes wrong (paid sub)

Keeping Apple coolness intact

The problems with scratches on the new iPod nano that hundreds of users reported during the past two weeks hasn't turned out to be the brand, reputation and PR crisis for Apple that it could have been.

Thanks largely to a public acknowledgement that a batch of nanos did suffer from a manufacturing defect regarding the screens and that Apple would replace affected nanos for free, the company has emerged unscathed with its coolness factor intact.

Obvious lesson - if your product does clearly have some kind of defect, and your customers are loudly complaining, admit to it quickly and say what you'll do to fix the problem. Apple did just that and defused the matter. Contrast this with the now famous Kryptonite bicycle lock case study (it is a case study now, I'm sure) from 2004. Or the Dell hell saga this year. Or the more recent "truth about the Land Rover Discovery 3" which is still developing.

One company got it right, three didn't. And it's nothing to do with blogs, no matter what anyone says - it's to do with being honest and listening to your customers wherever they speak: blogs, chat rooms, the daily paper, down at the pub, wherever. And responding to those collective conversations in a way that shows your customers that you do actually care.

Of the four companies I've mentioned, I'd guess that Apple at least has read the social customer manifesto.

At the Apple Expo in Paris the week before last, the iPod nano stole the show according to a BBC News report:

Of all its products, it is the iPod which has set alight Apple's brand the most in recent years. And among the other computer-related items on show at the Apple Expo in Paris during the week, the iPod Nano still stood out. The star of this year's Apple Expo was as slim and elegant as an after-dinner mint. Apple's latest candy-covered iPod, the Nano, comes in two or four gigabytes.

While it has suffered some teething problems - Apple has agreed to replace one batch prone to scratched or cracked screens - it still symbolises everything the company stands for, says Phil Schiller, Apple's head of worldwide product marketing. "Apple is a company that makes products that are very advanced technology and yet incredibly easy to use. And we have a tremendous number of engineering skills and talents to do this.

"And it's the magic of how that all comes together to make a product work just the way a customer would want, that's easy and that you love to have as a part of your life."

GM's Bob Lutz: The disruptive communicator

He was the first General Motors executive blogger when the GM Fastlane Blog launched last January. Now he's the first GM executive podcaster on FastLane Radio, GM's podcast series launched in February.

GM vice chairman Bob Lutz stars in a Q&A discussion with Bill O'Neill, GM's executive director of communications. During much of the 20-minute podcast released yesterday, Lutz and O'Neill talk about cars, the North American market, the competition, fuel economy and performance, and other car-related themes.

I found it especially interesting when, about 15 minutes in, Lutz starting talking (passionately) about why he got into blogging and commented at some length on how he sees the medium and its value both for GM and its audiences, contrasting blogs with traditional and formal corporate communication. He remains consistent with his advocacy that a blog gives the company direct and unfiltered feedback from customers and car enthusiasts.

Amongst others things, Lutz said one of his biggest frustrations has always been that "the media has the voice and you don't" unless you buy advertising. But such advertising, he said, is distrusted so a medium like a blog is extremely effective when you want to state your point of view or correct something. Plus it makes you feel a lot better when you're able to do that, Lutz said.

He also commented on who he believes are the key audiences for the GM FastLane Blog - fellow bloggers ("a large group of people listened to by friends who don't blog"), and the media who, he says, gain "therapeutic value" through seeing that GM reacts openly and honestly and which may cause those media to see that "this isn't a one-way street." He added that, as the company now has direct access to customers, in the long term that could pose a threat to conventional print media.

Such directness and disarming informality is a hallmark of Lutz as the GM new media champion, with a disruptive approach to traditional communication that I find exhilarating in a leader of one of the world's most traditional companies. Would there were more like Bob Lutz!

If I have any criticism of the podcast, it would be that O'Neill's questions seemed somewhat leading. A little too much of "I know that GM has..."  and "I know that you are..." etc has a bit of a rehearsed air about it. Maybe it's because I'm a communicator myself as I believe that the senior communicator conducting an executive interview like this for a podcast means it will likely appear to many as less than wholly credible when it sounds less than wholly natural and a bit too polished. I wonder what it would be like if Lutz were engaged in conversation with, say, a customer or a dealer.

Much might depend on the communication objectives of the podcast. Which leads me to another thought. Ostensibly, the podcast is aimed at the same people who use the blog which is about GM's cars and not GM's business. It's only available via the blog. Yet in listening to the conversation, I'd say it would be of interest to others like investors and the financial community as it would give those audiences another dimension in understanding GM's business and its leadership.

In any event, it's a great job and an interesting development in GM's evolutionary use of new media channels.

• Related - Bob Lutz interview for Naked Conversations, the new book on corporate blogging due out at year's end, in April 2005.

Communicating the power of 3

Listening to eBay's investor conference call last night which took place to discuss eBay's acquisition of Skype, and following along with the slide presentation (PDF), it's now clearer to me what the expected synergies are from this deal from eBay's and Skype's perspectives.

It's something they're calling the Power of 3:

(Click to see a larger image.)

What this diagram illustrates to me is a simple addition to the eBay/PayPal business model:

• On eBay, sellers go where the buyers are, and vice-versa.
• With PayPal, more sellers (and not only eBay sellers) offer payment options by that means, and more buyers use that option.
• Integrating Skype into the eBay/PayPal mix gives buyers and sellers the means to quickly and easily get in touch with each other if they want to, and for free if they make their calls entirely via the internet no matter where each of them is. Talk about facilitating global commerce!
• Each part of the mix feeds the other, enhancing the richness of each element and helping to bolster and grow the whole eBay offering.

So that's my concise business takeaway from this deal.

Of course, it's far more complex than that. Questions such as why did eBay buy Skype at all - could they not have simply entered into some kind of service agreement with Skype? Or why did they spend so much - many seem to think it's a very expensive acquisition. There have been plenty of instant analyses during the past 24 hours, both by mainstream media and interested bloggers, that address such questions and provide many different answers.

Three such analyses I've read today, and which I easily understand, are What will Ebay do with Skype? (Financial Times, paid sub), eBay Opens a Whole New Channel (Business Week Online), and Skype - Chapter 2 (Skype Journal). Read them and see what you think.

So where does this place the Skype user, the customer? What's in it for him or her?

Well, I'm a long-term Skype customer - I use all the service offerings - a frequent PayPal user and a very occasional eBay user. I'm probably a hot target type for eBay post-acquisition as getting someone like me to use eBay more must be part of their plan. (If the Dutch eBay site offered the interface in English as well, I'd use it more!)

But speaking as a Skype customer, I think this is a terrific deal for Skype and its users. All the information I've seen and heard since the deal was announced yesterday indicate to me that the customer will be a winner as Skype continuing as a stand-alone business will be able to develop its services with the support and resources of a robust and solid business led by people who demonstrate clarity of purpose and clear direction. There's a lot of confidence there to back up the hard financial facts which I like.

The interesting thing now will be for eBay and Skype to demonstrate all this to customers at a time when the internet phone business is looking poised to really take off. Skype may well have a presence in 225 countries and territories worldwide and be the market leader in every major country, as founder Niklas Zennström said in yesterday's investor call. That matters little to the customer in, say, Italy who continues to have a painful experience calling his auntie in, say, Costa Rica. And when there are viable-looking alternatives like Microsoft Teleo, Google Talk and Gizmo, I wonder what customer/brand loyalty will really mean.

If the foundation's solid, communicating the 'Power of 3' now has center stage.

Ebay says it is acquiring Skype

It's now official - Ebay is acquiring Skype.

A press release on the Ebay investor relations website makes it clear:

London, September 12, 2005 – eBay Inc. (Nasdaq: EBAY; www.ebay.com) has agreed to acquire Luxembourg-based Skype Technologies SA, the global Internet communications company, for approximately $2.6 billion in up-front cash and eBay stock, plus potential performance-based consideration. The acquisition will strengthen eBay’s global marketplace and payments platform, while opening several new lines of business and creating significant new monetization opportunities for the company. The deal also represents a major opportunity for Skype to advance its leadership in Internet voice communications and offer people worldwide new ways to communicate in a global online era. Skype, eBay and PayPal will create an unparalleled ecommerce and communications engine for buyers and sellers around the world.

“Communications is at the heart of ecommerce and community,” said Meg Whitman, President and Chief Executive Officer of eBay. “By combining the two leading ecommerce franchises, eBay and PayPal, with the leader in Internet voice communications, we will create an extraordinarily powerful environment for business on the Net.”

[...] eBay will host an investor conference call to discuss the announcement at 5 am Pacific Time today. A live webcast of the conference call can be accessed through the eBay’s Investor Relations website at http://investor.ebay.com. An archive of the webcast will be accessible through the same link.

See Ebay's PDF press release for the complete announcement.

[Edit] Skype has also posted the press release.

Ebay acquisition of Skype looks imminent

Still just a rumour? Last Thursday, the Financial Times reported on a strong rumour that Ebay was in talks to acquire Skype.

This morning, the FT has this story prominently displayed on its home page:

Ebay was in the final stages late on Sunday night of sealing an agreement to buy Skype, the fast-growing provider of voice calls over the internet, for more than $2.6bn, according to a person close to the situation.

The deal, which ends a flurry of takeover approaches from other internet and media companies, could cost as much as $4.1bn, if Skype hits certain performance targets between now and 2008.

Financial Times | Ebay set to seal Skype deal for over $2.6bn (paid sub)

Strong rumours persist about Skype acquisition

From the Financial Times this morning:

Skype, the European internet telephony provider, on Thursday played down talk of an imminent takeover, declining to comment on a report that Ebay had joined the list of potential suitors with an offer valued at up to $5bn. Ebay on Thursday declined to comment on a report in the New York Post that it offered to buy Skype.

Early last month, a rumour circulated that News Corp was considering buying it for $3bn and on Monday, Hutchison, the telecommunications group, denied a report it was about to buy a 5 per cent stake in Skype. However, Hutchison is affiliated with TOM Online, the Chinese internet and wireless communications group, that on Monday announced a partnership with Skype.

Microsoft is also reported to be interested in the company.

The New York post story includes this comment:

A source said Skype has been in exclusive negotiations with eBay for some time, but the agreement expires in the next few days.

Microsoft snaps up Teleo

The instant messaging market just shifted up a few gears with the news today that Microsoft has acquired Teleo, the Skype-like internet phone/chat service.

In a press release this morning, Microsoft said it plans to use this acquisition as a means to greatly extend the capabilities of MSN Messenger. An announcement on the Teleo website said:

[...] Microsoft plans to incorporate and expand upon Teleo’s technologies, integrating them into the MSN services infrastructure, with plans to ultimately deliver new VoIP consumer applications in future releases of MSN services, such as MSN Messenger.

Teleo has been in beta since it launched earlier this year (that beta programme is now discontinued, according to the website). I tried it in February and it did look very attractive as an alternative to Skype at a time when Skype's offering lacked much of what it now comprises.

Microsoft's new tool is a bit different to that of Google who launched Google Talk last week. The difference is that while Google Talk enables you to connect to other users via your PC for free voice and text chatting, it doesn't have real phone calling capability, ie, the ability to make and receive phone calls from regular phones such as you can with Skype and its SkypeIn and SkypeOut offerings.

Teleo, on the other hand, has many similarities to Skype including that phone-calling capability.

That gives a pretty clear idea on what Microsoft is thinking as CNET News' story indicates:

[...] Microsoft has its eyes set on something more like Net phone company Skype's service, however. A key part of Teleo's technology is focused on making calls from a computer to an ordinary telephone, a feature that company executives said would start finding its way into MSN Messenger before the end of 2005.

What's next? What about Gizmo which I experimented with last month? Maybe Yahoo will come knocking on that door.

Newsworthy to start the day 9-8-05

> The driving force behind the spectacular market debut of shares in the Chinese search engine company Baidu.com on Friday was its resemblance and ties to Google, whose own offering created a sensation last year, analysts said over the weekend. Shares in Baidu soared Friday on the Nasdaq stock market in one of the most successful initial public offerings since the peak of the dot-com era. The stock more than quadrupled by the end of the day, instantly creating the most valuable Internet company in China. The shares were priced at $27 but opened at $66 and then soared to $122.54. [...] Investors in Baidu include Google and the Silicon Valley venture capital firms Draper Fisher Jurvetson and IDG Ventures. Foreign investors are trying to cash in on an Internet boom in China, where there are now estimated to be about 100 million regular Internet users. (New York Times)

> The rumor that Cisco is looking to buy Nokia for its wireless networking business makes absolutely no sense whatsoever, says Business 2.0. Yes, wireless networking is becoming increasingly important to Cisco. But why buy Nokia, which has a massive consumer cell phone business that Cisco has no clue how to run and a hefty $73 billion market cap, when Ericsson and Lucent are far cheaper and far better fits especially Lucent which only has a $13 billion market cap, sells only to enterprises just like Cisco, is based in the U.S., and arguably has just as strong a set of backend wireless networking technologies as Nokia. (Business 2.0 Blog)

> Microsoft has quietly released a redaction tool for Office Word 2003 to let users black out sections of confidential data from documents. The security tool, available as a free download, plugs into Microsoft Office Word 2003 to offer a simple interface for marking sections of a document for redaction. [...] The tool could come in useful for government departments and businesses worried about the leakage of sensitive documents and confidential legal information. It could also be used to protect details in insurance and other contracts that are printed or distributed electronically. The redaction tool works perfectly for securing documents without losing formatting and design. Without the tool, businesses will typically delete the sensitive text, but this disrupts the format. In addition to providing document security, Microsoft is using the tool to show off the extensibility of the Office 2003 document processing suite. (eWeek)

> Budding amateur photographers and citizen journalists should not be tempted to become star stalkers says the founder of an amateur photo agency. Kyle MacRae, whose agency Scoopt represents mobile snappers so they get paid for their work, said there are serious ethical issues at stake. Following the London bomb attacks and Asian tsunami, news outlets have been keen to exploit mobile snaps and video. Cameraphone growth has let more people capture events as they happen. Such hazy snaps usually taken by amateurs who witness events before they hit the headlines are proving valuable to traditional news organisations. Although Mr MacRae is passionate about the potential impact witness or citizen journalists can have in changing what becomes newsworthy, he said that should not mean people go out deliberately searching for that elusive scoop. This week, the UK Chartered Institute of Journalists also warned news organisations against actively encouraging people to do that, adding that people should be paid for their contributions too. (BBC News)

> A top shareholder in Skype said on Monday it wants to see the fast-growing Internet telecoms software firm stay independent after a report of failed takeover talks with media mogul Rupert Murdoch's News Corp. "The company (Skype) is worth a lot more independent," said Timothy Draper, managing director of Draper Fisher Jurvetson, a Californian venture capital firm which he says owns between 10 and 20 percent of Skype. "I would prefer that it (Skype) remains independent," Draper told Reuters in a telephone interview. By allowing users to make free phone calls around the world on the Internet, Skype is regarded as one of the biggest threats for telecoms operators. Founded just two years ago, it already counts more than 48 million registered users. "Skype is in a wonderful strategic position, it's becoming the standard communication platform for more and more people," Draper added. (Reuters via eWeek)

IBM starts investor-focused podcasts

Reuters: IBM is the latest major company to embrace podcasting. [...] The world's largest computer company said on Friday it plans to introduce a series of occasional podcasts on its investor relations site as part of a broader effort to communicate directly to its investors and the wider public about hot topics.

This is a significant move in business podcasting. Until now, every company who has embraced this medium has used it as part of broad marketing, communication and customer relationship activities. This is the first example I'm aware of where a company - a publicly-held one at that - has jumped into a business area that many people consider to be a risky one for such open, informal and transparent communication channels ("What about regulations and the SEC?"). Clearly not so if you do it right.

I do like the strap line on the podcast home page:

You’ve read our point of view. Now hear what we think.

Interestingly, in the explanations on that page on how to get the podcast and the various podcatchers you can use, it includes iTunes. What better way at the moment to reach the mass podcast-listener market?

The first investor relations-produced podcast - IBM and the Future of Driving, an 18-minute recording - is available now. Nicely produced (definitely not an indy-type podcast).

IBM's announcement yesterday is not their first move into podcasting - the IBM Systems and Technology Group, for instance, already podcasts as this podcast on 26 July indicates.

Yet more examples of the growing uptake of an effective and complementary communication medium by large corporations. Not especially in the IT industry, either, as this embryonic list indicates.

IBM continues to delight with their innovative communication ideas. And you can be absolutely sure other companies have similar plans in the works.

Related NevOn posts:

• IBM publishes guidelines for employee bloggers
• IBM creating an army of evangelists